Lack of Clarity in Business Strategy Reveals Itself in Sourcing

- March 5, 2013 3:38 PM
Categories: Commentary | Tags: , ,

Spend Matters welcomes a guest post from Tony Fross, from LogicSource.

Most people agree that operational activities have some connection to corporate strategy. But most people probably feel that the two things are pretty distant. And in some senses they are. Boardroom strategy sessions have little direct effect in the selection of an individual supplier, the negotiation of a particular rate card, or the granular specifications of a particular good that is sourced. Much like the proverbial butterfly causing a hurricane in a distant location, however, what’s quite easily visible in the world of sourcing and supply chains is a lack of clarity in strategy at the top of the enterprise.

Here are two brief examples from industry leading, multi-national corporations who display excellence in many spheres, yet also had some significant opportunities for strategic improvement:

Home Goods Manufacturer
At the top of the corporation, there was a lack of clarity around the strategy and approach to product innovation. Products were being developed largely on instinct, with very little market data and little to no prototyping. At the same time, there was a rigorous methodology in place in manufacturing for ensuring COGS during new product development.

As a result, downstream in the sourcing department colleagues were being directed to meet COGS targets that could only be met with large MOQs, which in turn were based on sales forecasts with little grounding in market data.

The net result? Lots of product-specific packaging materials being procured that could not be reused for more successful product lines.

Where the strategic issues ultimately made themselves visible was in the warehouse. Stacks of packaging could not be reused, but marketing had no budget to destroy it.

Women’s CPG Manufacturer
A public company set its sights on growth through acquisition. At the same time, “synergies” for each acquisition were promised to Wall Street.

The strategic problem in this case is that the executive team fails to announce any internal strategy for synergy. Their internal announcements focus on growth. This creates a common issue that confounds many procurement and supply chain professionals, which is that brand managers refuse to allow any rationalization of their SKUs; even for decaying brands that no longer merit the high-end packaging of a recently launched growth platform.

In both of these cases, the waste and the missed opportunities were crystal clear to employees working in the front lines of procurement, supplier management, and inventory management roles. Sadly, these operational colleagues serving in the front lines had very few channels to reveal what they were seeing far downstream from the C-suite or corporate strategy department.

These examples represent an all-too-common situation. Sometimes when these effects are surfaced they are immediately shunted to an operational excellence team (e.g., Six Sigma, Lean, or the like) or perhaps even Finance to sort out. Unfortunately, those well-meaning colleagues generally just “work the problem”; in other words, they may find ways to keep costs down, or perhaps remove process inefficiencies, but the core issue: lack of strategic clarity inevitably continues to lead to conflicting directions or activities that cannot be easily resolved downstream.

The best way to address these issues is to give significant procurement and supply chain projects C-level sponsorship. The objective is not to bog down the executive suite with mundane details they have no patience for, but rather to surface the business critical issues to senior leadership that are best resolved – in a lasting fashion – from the top.

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